Regional NOCs building R&D capabilities to match global peers: Study

Research by Strategy& finds international companies have an R&D intensity of 0.42%, NOCs outside the Middle East are at 0.52%, and Middle East NOCs are only at 0.10% to 0.15%

NOCs in the Middle East have not kept up with their global industry peers when it comes to R&D intensity.
NOCs in the Middle East have not kept up with their global industry peers when it comes to R&D intensity.

National oil companies (NOCs) in the Middle East region should implement a more robust research and development (R&D) framework, according to a recent study by management consultancy Strategy& (formerly Booz & Company), part of the PwC network.

Despite the global decline in oil prices and overall R&D spending, global oil and gas companies have maintained this trend, sustaining relatively higher investments in R&D with an overall R&D intensity – the ratio of R&D spending to revenues – growing by 0.55% in 2015.

However, NOCs in the Middle East have not kept up with their global industry peers when it comes to R&D intensity (R&D spend as a proportion of company revenue).

“Even though NOCs in the Middle East recognise the need to build R&D capabilities to move from being technology adopters to becoming innovation leaders, they lag behind the global industry in terms of R&D investments,” said George Sarraf, partner at Strategy& and the leader of the energy, chemicals, and utilities practice in the Middle East.

“The difference in the investment level is significant when compared to industry peers, including NOCs outside the Middle East. For example international companies have an R&D intensity of 0.42%, NOCs outside the Middle East are at 0.52%, and Middle East NOCs are only at 0.10% to 0.15%,” Sarraf was quoted as saying in the press release sent to arabianoilandgas.com.

The Strategy& study suggests that building the necessary innovation capabilities requires addressing several region-specific challenges including:

1) Limited innovation ecosystems in the oil and gas industry

2) Insufficient government support for R&D

3) Weak links between academia and the industry, and

4) The predominant culture of sourcing technologies from external suppliers rather than developing in-house solutions.

Commenting on the state-of-affairs with regards to R&D activity in the regional oil and gas sector, Anil Pandey, principal with Strategy& and a member of the energy, chemicals, and utilities practice in the Middle East said: “Most major Middle Eastern National Oil companies are starting to see the opportunities and returns R&D capabilities can generate in the long run. As a result we not only see a shift in the investments both at a national and international level in terms building national R&D centres, technology parks and international satellite centres in order to enhance their overall capability.”

According to Strategy&, achieving a fully functional R&D setup requires a six-part framework:

  • NOCs need to define a clear R&D strategy by identifying when to develop in-house capabilities and when to adopt existing technologies in line with their long-term business strategies.
  • They also need to ensure continuous communication between all parties involved in the development and deployment of new technologies.
  • NOCs should focus on attracting and retaining the right talent by improving their value proposition.
  • Implement an effective collaboration model with the right external partners.
  • Throughout this process, NOCs also need to pave the way for commercialisation by considering issues such as intellectual property protection, patents and monetisation priorities.
  • Finally, the companies should foster a culture of innovation consistent with their overall R&D strategy

Dr Yahya Anouti, principal with Strategy& and a member of the energy, chemicals, and utilities practice in the Middle East, concluded: “Middle East NOCs are aware of the need to develop their R&D capabilities to be able to compete at the global level as technology innovators. However, progress still needs to be made to ensure their overall business objectives are aligned with R&D requirements. Doing so will enable Middle East based NOCs to achieve global recognition and influence future research trends in the oil and gas industry.”

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